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Chapter 11 - Economic growth and the investment decision. This chapter describe and compare factors favoring and limiting economic growth in developed and developing economies, describe the relationship between the long-run rate of stock market appreciation and the sustainable growth rate of the economy, explain the importance of potential gross domestic product (GDP) and its growth rate in the investment decisions of equity and fixed-income investors,. | Chapter 11 economic Growth and the Investment Decision Presenter’s name Presenter’s title dd Month yyyy 1. Introduction Measuring and forecasting growth and the factors that contribute to growth are important in valuation and portfolio management. Forecasting growth requires understanding the drivers to an economy’s growth. The focus of economic growth is on the long-term trend in aggregate output. Copyright © 2014 CFA Institute 2 2. Growth in the Global Economy: Developed vs. Developing countries GDP and per capita GDP are indicators of economic development and standard of living. or Comparing real GDP allows for a comparison of standards of living. Comparing growth in real GDP per capita allows for a comparison of changes in the standard of living. Purchasing power parity (PPP) is the theory that exchange rates change so that the purchasing power in different countries is the same. The cost of a basket of goods and services is the same across different countries. Problems with . | Chapter 11 economic Growth and the Investment Decision Presenter’s name Presenter’s title dd Month yyyy 1. Introduction Measuring and forecasting growth and the factors that contribute to growth are important in valuation and portfolio management. Forecasting growth requires understanding the drivers to an economy’s growth. The focus of economic growth is on the long-term trend in aggregate output. Copyright © 2014 CFA Institute 2 2. Growth in the Global Economy: Developed vs. Developing countries GDP and per capita GDP are indicators of economic development and standard of living. or Comparing real GDP allows for a comparison of standards of living. Comparing growth in real GDP per capita allows for a comparison of changes in the standard of living. Purchasing power parity (PPP) is the theory that exchange rates change so that the purchasing power in different countries is the same. The cost of a basket of goods and services is the same across different countries. Problems with adjusting a currency using market exchange rates: Rates are volatile and affected by financial flows in tradable goods and services. Copyright © 2014 CFA Institute 3 LOS: Describe and compare factors favoring and limiting economic growth in developed and developing economies. Pages 622–630 Notes to the presenter: Purchasing power parity was discussed in Chapter 10 as well in the context of exchange rates (exchange rates in the long run). 3 Growth in the Global Economy: Developed vs. Developing countries Factor Limiting Growth Favoring Growth Rate of savings and investment Low rate High rate Financial markets Poorly developed Well developed Legal system Corrupt or weak Well developed Property rights Lacking Well defined Education and health services Poor Good Policies regarding entrepreneurship High tax and restrictive regulations Low tax and few regulations International trade and flow of capital Restrictive Open Copyright © 2014 CFA Institute 4 LOS: Describe and compare factors favoring .
